Before we begin, can I ask everyone to ensure that all electronic devices are turned off or switched to silent mode? I remind Committee members that Mr Speaker says that teas and coffees are not allowed during sittings. Today, we will consider first the programme motion on the amendment paper, then a motion to enable the reporting of written evidence for publication.

Alan Duncan: I beg to move,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 27 February) meet—
(a) at 2.00 pm on Tuesday 27 February;
(b) at 11.30 am and 2.00 pm on Thursday 1 March;
(c) at 9.25 am and 2.00 pm on Tuesday 6 March;
(2) the proceedings shall be taken in the following order: Clauses 2 to 5 Schedule 1; Clauses 6 to 18; Clause 1; Clauses 19 to 43; Schedule 2; Clauses 44 to 50; Schedule 3; Clauses 51 to 56; new Clauses; new Schedules; remaining proceedings on the Bill.
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 6 March.
May I take this opportunity to welcome you to the Chair, Mr McCabe, and say what a pleasure it is to serve under your chairmanship? Because the Bill in its principles enjoys cross-party support, in the spirit of what I believe is cross-party agreement I am happy to offer to any member of the Committee the services of my officials, should they want any briefing or advice on any detail of the Bill.

The deadline for amendments to be considered during the first two line-by-line sitting days of the Bill has passed. The deadline for amendments to be considered on the third line-by-line sitting day is the rise of the House on Thursday.

We now begin line-by-line consideration of the Bill. The selection list for today is available in the room and on the Bill webpage. This shows how selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. A Member who has put their name to the lead amendment in a group is called first.  Other Members remain free to catch my eye to speak on all or any of the amendments within that group. A Member may speak more than once in a single debate.
At the end of a debate on a group of amendments, I shall call the Member who moved the leading amendment again. Before they sit down, they will need to indicate if they wish to withdraw the amendment or to seek a decision. If any Member wishes to press any other amendment or new clause in a group to a vote, they need to let me know. I shall work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments, if any are tabled.
Please note that decisions on amendments do not take place in the order they are debated but in the order they appear on the amendment paper. In other words, debate proceeds according to the selection and grouping list; decisions are taken when we come to the clause that the amendment affects. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules, following the debate on the relevant amendments. I hope that explanation is helpful.
The Committee has just agreed a programme motion that will be reproduced in the amendment paper for tomorrow. The programme motion sets out the order in which we have to consider the Bill.

With this it will be convenient to discuss the following:
Amendment 30,in schedule 1, page50, leave out lines 2 and 3.
Amendment 31,in schedule 1, page50, leave out paragraph 33.

Alan Duncan: I thank the hon. Lady for her question. It is never unhelpful to be able to clarify a point of detail of this sort, and I hope I can now do that to her satisfaction.
Amendments 29 to 31 would cause the Bill to deviate from the established practice in export controls and customs matters where transfers of goods to the Isle of Man are not classified as exports and imports. The Isle of Man is part of a joint customs and indirect tax area within the United Kingdom, and across all customs matters goods transferred to the Isle of Man are not said to be exported from the United Kingdom, and goods transferred from the Isle of Man are not said to  be imported into the United Kingdom. That is a long-standing customs arrangement and has been reflected in legislation as well as in custom and practice.
The Isle of Man is integrated into HM Revenue and Customs’ CHIEF—customs handling of import and export of freight—computer system, which enables it to operate UK customs. The Isle of Man mirrors UK export control and sanctions legislation and makes licensing decisions on exactly the same basis as the UK. The amendment, if it were carried, would put sanctions policy out of step with export control and customs. Only goods covered by sanctions legislation would be affected by this change and would in essence be subject to the same export controls twice. If a good were travelling to a sanctioned destination, via the Isle of Man under a licence, it would require one licence from the UK and another from the Isle of Man. The amendment would cause procedural and legal difficulties and increase administrative burdens for business and Her Majesty’s Government, and all for no observable benefit
I hope that I have persuaded the hon. Lady and given a satisfactory explanation in response to the amendment which in any event she does not intend to press.

With this it will be convenient to discuss the following:
Amendment 16, in clause6,page6,line33,at end insert “,
unless an aircraft is providing legitimate travel to a person recognised as a refugee under the UN Convention Relating to the Status of Refugees.”
This amendment would mean that aircraft containing a recognised refugee would not constitute a disqualified aircraft under this Act.
Amendment 17, in clause7,page7,line36,at end insert “,
unless the ship belongs to a person or the ship provides legitimate travel to a person, recognised as a refugee under the UN Convention Relating to the Status of Refugees.”
This amendment would mean that shipping sanctions could not be imposed on ships belonging to, or carrying, a recognised refugee.

Alan Duncan: I genuinely thank hon. Members for raising this issue, which we dwelt on at some length on Second Reading. The hon. Member for Bishop Auckland says, I am a former DFID Minister, so I feel these issues deeply. I am familiar with not only the plight of refugees, but the legal void in which they sometimes have to try to survive. The amendment is a laudable attempt to address that very issue and I make no criticism whatsoever of the intent behind it, because it is one that we all share.
The Government take seriously the impact that sanctions might or can have on a country’s civilian population. We also acknowledge the important work of NGOs and other humanitarian organisations working in difficult and often threatening situations—look at what is happening in Ghouta in Syria at the moment. The amendments are designed to exempt ships or aircraft from sanctions if they are being used to transport refugees. I agree with the principle, but in my opinion this is not the right way to achieve the desired effect.
I hope that hon. Members recognise that refugee status—and hence the ability to deem someone a refugee under the amendment—is usually granted after a person has fled from their country of origin: once they have reached safety, they can apply for asylum and be recognised as refugees. The amendment would not cover persons fleeing from their country of origin in order to claim asylum. I suspect that that does not reflect the good intentions of those who tabled it.
As I said earlier, the UK is very proactive in ensuring that NGOs can operate in countries subject to sanctions by providing licences and exceptions. In fact, the Bill would make it easier by allowing us to draft exceptions and grant general licences specifically aimed at assisting humanitarian activities, which include assisting refugees or displaced persons. There are good reasons why broad prohibitions are applied to a country, and licences are used to provide targeted exceptions. If we were to provide a general exception for ships and aircraft in those circumstances, aside from the practical difficulty with these amendments that I have mentioned, it could be subject to abuse and would be pretty well impossible to enforce.
Taking that logically—I am brainstorming here—a sanctioned aircraft could stick one notional refugee on it and then claim total exemption, even though that aircraft was sanctioned for good and broad reasons. That could lead to the abuse of a single so-called refugee to exempt an entire ship or aircraft. I do not really want to use the word “hostage”, but I think the principle of what I am saying is understood. In extremis, that could help organisations to circumvent sanctions.
The exemption would also be difficult to apply in practice. If a person on a ship or aircraft claimed to be a refugee, that circumstance would seem to engage this exemption. However, the exemption covers only recognised refugees and so would not cover asylum seekers. To engage it, the person would need to prove their refugee status. If it was later determined by the proper authorities and the courts that they were not in fact a recognised refugee, the ship or aircraft would have breached sanctions.

With this it will be convenient to discuss the following:
Amendment 19, in clause15,page14,line41,at end insert—
“(3A) The Secretary of State must, within six months of this Act coming into force, undertake a consultation on measures to establish an overarching framework for exceptions and licences to be granted for the purposes of subsections (2) and (3).”
This amendment would require the Government to consult on measures to establish a framework for exceptions and licences to disapply the effect of sanctions.
Amendment 20, in clause15,page15,line12,at end insert—
“(c) humanitarian, development, reconstruction and peace-building agencies engaging with sanctioned individuals and entities in order to safely and effectively carry out their activities.”
This amendment would enable exceptions to any prohibition or requirement imposed by regulations for humanitarian, development, reconstruction or peace-building purposes.

Helen Goodman: We have now jumped to the section on exceptions and licences, which relates directly to our previous discussion about refugees and the treatment of aircraft and ships. On Report in another place there were some amendments relating to the effects of sanctions on humanitarian work and to exceptions for humanitarian work, and an amendment that looked to get the Government to establish an overarching framework.
We are looking to amend three things in clause 15. First, with amendment 18, we would like to see the inclusion of provisions for the establishment of a fast-track process for dealing with requests for exceptions and licences for humanitarian purposes. I will go on to describe a situation where that was not working and had very bad consequences. We also want a consultation on measures to establish an overarching framework for all exceptions and licences within six months of the Bill coming into force. We have had representations on that from NGOs and the banking sector because they are all affected by it. Finally, we want to see exceptions to any prohibition or requirement imposed by sanctions for humanitarian, development, reconstruction and peace-building purposes.
I am pleased that new clause 5 has been put into this group, because it seeks a report on exemptions. I will come on to explain why that is for humanitarian exemptions and other exemptions.
The system of exemptions and licences is long standing and well intentioned, but it does not always work as well as we would all like. Chatham House, which did a big piece of work on this last year, said:
“British NGOs undertaking humanitarian operations in or near areas where non-state armed groups…are active face increasing restrictions on their access to the financial system, including delayed transfers, the freezing of funds and in some cases the complete closure of bank accounts. These restrictions impede the UK government’s ability to meet its commitment under the 2015 National Security Strategy and Strategic Defence and Security Review to refocus its aid budget to support fragile and broken states and regions.”
We are obviously in a situation where we have large populations moving around a great deal, sometimes under the control of ISIS or al-Qaeda. It is a very unpleasant and difficult situation.
Chatham House said:
“The perception of NGOs as ‘high risk’ can be traced in part to Recommendation 8…of the Financial Action Task Force (FATF). Drawn up after 9/11, this recommendation until recently described NGOs as being particularly vulnerable to misuse for terrorist financing, contributing to highly cautious behaviour by banks.”
While I mention the Financial Action Task Force, I would like to ask the Economic Secretary to the Treasury a question about it. It is included in the long title of the Bill, and I am a bit puzzled as to what its status is. Is it an offshoot of the OECD? Is it a treaty organisation? What exactly is it? What is its legal standing? What is its authority? Is it merely a coalition of the willing? Some of its work is good, but we need to understand a bit better what it is and why it is appropriate to mention it in the long title of a Bill. I can see that he knows the answer to these questions—good.
Since the global financial crisis, banks have been subject to far tougher regulatory and enforcement regimes for non-compliance, which has resulted in a diminishing appetite for risk, hitting humanitarian NGOs acutely as banks have shifted away from clients perceived to present the greatest risk of terrorism financing and money laundering. Banks are obviously crucial partners for the authorities in the implementation of international sanctions and counter-terrorism legislation. For UK-based humanitarian NGOs this presents the challenge of dealing with not only UN and EU sanctions, but the extraterritorial reach of the US, as banks seek to ensure that funds and aid are not diverted to designated individuals and non-state actors. While licensing programmes for such humanitarian activity do exist, they have little meaningful impact as yet on NGOs and their ability to navigate the financial system.
Humanitarian NGOs generally accept the need for regulation and due diligence, but the current weight of compliance demands by their banking partners is often seen as disproportionate—I have some quite interesting evidence of that, which I will come to in a minute—resulting in a need to spend donor money on additional staff and due diligence tools, as well as in increased administration costs, aid delivery and financial transfer delays, and, in some circumstances, even the closure of programmes to which funding cannot be delivered. Donors, and particularly Government agencies such as DFID, appear to have done little to alleviate this burden of compliance—I am not sure when the Minister for Europe left DFID.

Helen Goodman: Right. The situation has left responsibility for the due diligence required for funds transfers with humanitarian NGOs operating in high-risk zones.
Banks and NGOs must cultivate relationships, with the support of the Charity Commission, that allow for reciprocal education with respect to compliance expectations, operating risks and mitigation steps. The Government therefore have a challenge in this situation. They need to provide guidance and clear messaging where there is ambiguity at the moment with respect to sanctions and counter-terrorism legislation.
I want to give the explanation for the fast-track process. We have a serious situation in Syria. Everyone knows that 400,000 people have died; 5 million have sought refuge overseas; 6 million have been displaced internally; and half a million people are in besieged areas. Yet this is what is going on. Saleh Saeed, the then chief executive of the Disasters Emergency Committee, said a couple of years ago about Syria:
“The DEC is concerned that the current regulatory regime is significantly slowing and seriously complicating legitimate transfers of much needed funds to pay for humanitarian aid operations inside Syria.”
The lengthy process for getting the money means that on one occasion a programme supporting 10,000 people simply had to close in 2013.
Emanuela Rizzo, who works for what I think is a French organisation, Terre des Hommes, is quoted as saying:
“Receiving money from Europe to Syria is a disaster,”
The report states that the organisation made a request and waited:
“After 15 days of delay, it contacted the bank in Italy, which informed the NGO that the transfer had been rejected…The bank required a long list of documents, including the NGO’s agreement with the UN Office for Coordination of Humanitarian Affairs, its memorandum of understanding with the Syrian Arab Red Crescent, a letter vowing not to fund ‘terrorist’ groups, and a list of implementing partners.
After two months and a 200 euro…fee, TDH was able to get the money transferred through a different Italian bank with an affiliate in Syria. ‘But it’s becoming incredibly difficult’”.
The report states:
“Other aid agencies struggling to transfer money have resorted to wiring money to banks in Lebanon and physically driving across the border to pick it up. Aid coming in via social solidarity networks has had to do the same.
Since the beginning of the Syrian crisis in 2011, the USA, European Union, Turkey and the League of Arab States…have imposed a series of sanctions on Syria’s arms, banking, energy and oil sectors”—
all for perfectly good reasons—
“as well as on specific individuals, with the stated aim of stopping state repression of protests, initially, and later, of weakening the government.”
However, the sanctions regime has had significant unintended repercussions and second-order effects.
About 15 months ago, when I was on the Treasury Committee, we took evidence from the Charities Aid Foundation and UK Finance. We had some interesting exchanges, so I asked the Charities Aid Foundation what representations it had made. The witness said:
“We worked, for example, in changing proposition 8 in the FATF arrangements, which has a presumption that charities are high risk. We have now had that changed to a risk-based approach”.
However, that
“has created terrible distortions in the assessment of charities.”
The witness added:
“The best example that I could give you is in Egypt, which is scored very highly by FATF because it follows explicit rules in the treatment of charities. Yet all we have seen is a closing of civil society space in Egypt, where charities are simply closed down. That produces the best result, as far as FATF is concerned, because there is then no risk, since they are inherently high risk. Many of these charities are the ones that criticise the Government, so there is a real adverse effect coming through from some of these actions.”
On the question of compliance costs, I asked about the Financial Conduct Authority’s report, which had said that one large, well-known
“charity required £40k of advice on sanctions regimes in order to maintain operations in a number of jurisdictions.”
The Charities Aid Foundation witness said:
“The large international NGOs are spending significant amounts of money on compliance...DFID’s own recommendations in terms  of the funding that it provides is that 7% of the cost of any grant that it gives may be used on compliance costs.”
In practice, he said, it is often twice that: between 7% and 14%. It is underwhelming for people who write their cheque for £100 to the Red Cross to know that only £86 of it gets through because the other £14 is spent on lawyers in the UK.
The Charities Aid Foundation would also like more guidance about acceptable risk. Its witness said:
“You could have Treasury-approved guidance, developed along the lines of the guidance that is available from the Joint Money Laundering Intelligence Taskforce for other areas of activity.”
There is a question as to whether we want general exemptions for large, well-known organisations such as the Red Cross or UNICEF, or particular, small licences. Our view is that there is a lot of confusion, and that the individual licences system is not working that well. It is not only non-governmental organisations that agree with that, but the banks too.
UK Finance says it is
“imperative that the UK legislative architecture clearly defines how new legislation will be applied…Our members are clear that the UK’s departure from the EU offers a timely opportunity to create a domestic licensing regime”.
It is asking for a consultation, because that is a complex matter. It is not something that we can sort out in five minutes or in a Bill Committee of amateurs—albeit well-intentioned ones—such as ourselves. It needs expertise.
Alongside the legislation, UK Finance is asking for consideration through
“a wider dialogue on longer-term sanctions implementation.”
It says that,
“the impending UK legal sanctions framework will…introduce a new and extremely important dynamic…This will result in an increased scrutiny among globally operating corporate and financial institutions on the approach that will be taken by the UK towards pursing unilateral sanctions and extra-territorial enforcement activity…we would not wish either EU or overseas business to withdraw from the UK due to legal uncertainty, or for it to impede business reacting to potential future relaxation of sanctions”.
The situation is complex. UK Finance does not want people to not use British banks because we have a different and unclear set of rules that might bang up against the risk rules run by the Europeans or the Americans.
To summarise, UK Finance says that banks and international NGOs,
“have increasingly articulated that the current framework permitting humanitarian transactions into sanctioned and conflict environments needs re-thinking and an update.”
It proposes that,
“a new equilibrium be found that recognises the strategic importance of facilitating both humanitarian aid and permissible civilian transactions to higher risk jurisdictions subject to economic sanctions, whilst balancing expectations of appropriate sanctions compliance and counter terrorist controls”
that are required to make such movements of funds.
At the moment, banks and charities are,
“required to navigate a combination of complex multi-jurisdictional regulatory guidance and an inconsistent licensing regime which has led to a significant impact on the funding of humanitarian projects into certain conflict zones”
and other high-risk countries. The banks would like
“mutual recognition for humanitarian licences issued by ‘like minded’ competent authorities”
and
“general exemptions for certain mission critical activities”.
They, too, are interested in having a consultation.
New clause 5 is about reviewing the situation at the end of the process. The basic point, made strongly by Rights and Accountability in Development, is that the Bill does not provide sufficient transparency: we do not know why exemptions are granted to sanctioned individuals or how large they are. The new clause covers both the humanitarian exemptions and licences and the ones given to people who are themselves sanctioned. The reason is that we do not know how much money those people are allowed to have and what is considered reasonable for them. They are allowed to keep money unfrozen for their daily living expenses, but also for legal costs, in which we are particularly interested. We all know that there have been massive cuts to legal aid and we want to know whether people who are sanctioned, who often have extremely deep pockets, are being allowed to spend hundreds of thousands of pounds on expensive barristers. That is the rationale for our new clause 5.

John Glen: I cannot give a precise timetable. I will consult officials and write to the Committee to give clarification on that as soon as I can.
Amendment 20 would make it plain on the face of the Bill that exceptions to sanctions can be made for humanitarian development, reconstruction and peace-building activities. Broadening such exceptions to cover such a broad group of organisations and activities goes much further than the Government intended and is incompatible with both the policy intent and our obligations under UN and EU regimes. The Government are currently able to issue specific licences on application from humanitarian and other agencies. The licensing provision is read across and extended in clauses 15(2)(b) and 14(3)(a) to allow Ministers to issue both general and specific licences. It is the Government’s intention to use the power to issue general licences where appropriate. One key area in which it is foreseen that general licences could be written is for the purpose of delivering humanitarian aid. We should also be wary of the confusion caused by listing these activities but not others, such as denuclearisation activities. To add one would imply that the other was outside the scope of the Bill.
New clause 5 would require the Government to provide detailed annual reports to Parliament on its use of humanitarian exemptions and on licences issued for humanitarian purposes. However, given that experience shows that the number of licences for humanitarian purposes is likely to be relatively small, The Government believe that, rather than requiring a separate report in law, it would be more efficient to include figures on the use of exceptions and licences issued as part of the annual report that clause 27 requires the FCO to issue.
Hon. Members have understandably taken a keen interest in exceptions and licences and how they relate to humanitarian purposes, so it may help if I give more detail about how the Government intend to use our new licensing flexibilities under the Bill. The design of each sanctions regulation will take account of what exceptions or special licensing arrangements are appropriate for the type of sanctions regime, in line with the UK’s foreign policy goals. The explanatory memorandum for each statutory instrument will make clear what exceptions or licensing arrangements have been included for each sanctions regime.
Hon. Members will be able to consider exceptions and licences on a case-by-case basis when the statutory instruments are laid before Parliament, and full guidance will be issued for all sectors. We will continue to engage with representatives of those different sectors to ensure that any additional sector-specific guidance addresses their concerns. We will publish more information about our policy thinking on how some of the many forms of exceptions and licensing will work under the Bill.

We come to new clause 5 later. At the moment, we are dealing with amendment 18.

With this it will be convenient to discuss amendment 21, in clause17,page16,line36,at end insert—
“(8) An appropriate Minister must publish guidance from the Crown Prosecution Service on when it is in the public interest for a breach of a sanctions regulations to be prosecuted.”
This amendment would require the Government to publish guidance on when it is in the public interest for a breach of sanctions regulations to be prosecuted.

John Glen: The offences provisions are perhaps the most important amendments that we need to debate today, following the Government’s defeat in the other place. Hon. Members should be aware that without the fullest set of enforcement measures available to deal with breaches of sanctions, the UK will not be able to ensure effective implementation and enforcement of sanctions. That would make what are currently key foreign policy and national security tools virtually toothless, and therefore redundant.
It is important to recognise right at the start that the concerns in the other place were not about whether there should be criminal offences for breaching sanctions; it was accepted that there was a need for these offences. What was at issue was the circumstances where Parliament could properly give to Ministers the power to create offences. The Government have listened to those concerns. We understand them and these amendments address them.
Currently, EU sanctions against countries such Russia and Syria are imposed through EU legal Acts. These require member states to put in place enforcement measures at national level. In line with that requirement, the UK routinely creates criminal offences for breaches of sanctions by way of statutory instruments made under powers in the European Communities Act 1972 as modified by the Policing and Crime Act 2017, as well as other legislation such as the Export Control Act 2002. The Government therefore want to maintain continuity in this area by reproducing the powers available under existing legal frameworks for enforcement across the various forms of sanctions in the Bill.
Since the defeat in the Lords, Government officials and lawyers have worked with Lord Judge and others to seek a legislative solution. That has been a deep and meaningful dialogue, and I must express my gratitude to Lord Judge for his engagement in seeking to find a  way forward. We believe that can be found amendment 4, the enhanced procedural requirements, which we will debate later, in new clause 3 and the corresponding offence provisions for money laundering. The Government believe that combination of measures is the best solution to meet the concerns expressed in the other place while being practical to implement, which I think was the intention of those who raised the concerns.
The amendment restores to clause 17 the provisions to create sanctions offences in regulations. It provides for the enforcement of any prohibitions and requirements, to provide for criminal consequences if they are contravened or circumvented. The clause also provides for maximum penalties for breaches of sanctions in regulations. The provision states that regulations may not include offences with maximum penalties greater than 10 years’ imprisonment, which is in line with the maximum penalty available through the 2002 Act, and for offences other than trade sanctions we do not intend to create penalties greater than seven years’ imprisonment, in line with current practice. The clause should be read alongside the safeguards in new clause 3, which I will discuss later.
Even with the safeguards that we plan to introduce in new clause 3, the Government remain very aware that creating criminal offences and setting penalties in regulations is a serious matter, not to be undertaken lightly. I am therefore happy to repeat assurances given in the other place. First, no Government would ever create criminal offences for trivial matters. The powers detailed in clause 17 would be used only to create offences within the categories of offences that already exist for breaches of sanctions, breaches of licences and breaches of disclosure or information requirements. Secondly, Ministers should not use these powers in a way that is incompatible with the basic and fundamental rights of people in the UK—section 6 of the Human Rights Act 1998 expressly forbids it. Thirdly, as I said before, regulations under the Bill cannot create offences for trade sanctions with maximum penalties greater than 10 years, and we do not intend to create offences for financial sanctions and other types of sanctions with maximum penalties greater than seven years.
We have listened to the concerns expressed in the other place, and we have tabled amendments to introduce controls on the use of this power. As I said, I will speak to those amendments later in our considerations in Committee. In conclusion, the amendment will restore our ability to enforce sanctions by reintroducing the provision to create criminal and civil offences and penalties that are proportionate to the scale and nature of sanctions breaches and still effective as a deterrent. It should be read together with the enhanced procedural safeguards in new clause 3, which directly addresses the concerns raised in the other place.

Ordered, That further consideration be now adjourned.—(Mike Freer.)